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Deduction Allowed in Year Paid: Home Mortgage Interest Deductions (2025 IRS Guide)

This guide covers “Deduction Allowed in Year Paid” within home mortgage interest deductions. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 936 (2025), Home Mortgage Interest Deduction, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.

Deduction Allowed in Year Paid

You can fully deduct points in the year paid if you meet all the following tests. (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid.)

  1. Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)

  2. Paying points is an established business practice in the area where the loan was made.

  3. The points paid weren't more than the points generally charged in that area.

  4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.

  5. The points weren't paid in place of amounts that are ordinarily stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.

  6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided aren't required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You can't have borrowed these funds from your lender or mortgage broker.

  7. You use your loan to buy or build your main home.

  8. The points were figured as a percentage of the principal amount of the mortgage.

  9. The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.

Note:

If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan.

Home improvement loan.

You can also fully deduct in the year paid points paid on a loan to substantially improve your main home if tests 1 through 6 are met.

Caution: Second home.

You can't fully deduct in the year paid points you pay on loans secured by your second home. You can deduct these points only over the life of the loan.

Refinancing.

Generally, points you pay to refinance a mortgage aren't deductible in full in the year you pay them. This is true even if the new mortgage is secured by your main home.

However, if you use part of the refinanced mortgage proceeds to substantially improve your main home and you meet the first six tests listed under Deduction Allowed in Year Paid, earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan.

Example 1.

In 2005, you got a mortgage to buy a home. In 2025, you refinanced that mortgage with a 15-year $100,000 mortgage loan. The mortgage is secured by your home. To get the new loan, you had to pay three points ($3,000). Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that are ordinarily stated separately on the settlement statement. You paid the points out of your private funds, rather than out of the proceeds of the new loan. The payment of points is an established practice in the area, and the points charged aren't more than the amount generally charged there. Your first payment on the new loan was due July 1. You made six payments on the loan in 2025 and are a cash basis taxpayer.

You used the funds from the new mortgage to repay your existing mortgage. Although the new mortgage loan was for your continued ownership of your main home, it wasn't for the purchase or substantial improvement of that home. You can't deduct all of the points in 2025. You can deduct two points ($2,000) ratably over the life of the loan. You deduct $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2025. The other point ($1,000) was a fee for services and isn't deductible.

Example 2.

The facts are the same as in Example 1, except that you used $25,000 of the loan proceeds to substantially improve your home and $75,000 to repay your existing mortgage. You deduct 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2025. Your deduction is $500 ($2,000 × 25% (0.25)).

You also deduct the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2025. The total amount you deduct in 2025 is $550 ($500 + $50).

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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